Callidus tumbles on Q1 loss forecast

MichaelBaron

NEW YORK (CBS.MW) -- Shares of Callidus Software sank Monday after the company said it would record a surprise loss in the first quarter due to a shortfall in licensing revenue.

The stock
CALD
plunged $4.98, or 36 percent, to $8.70 in afternoon action, bouncing nominally after hitting a 52-week low of $8.51. Volume of 2.6 million was about 19 times the issue's daily average of 140,000.

In a press release before the opening bell, the San Jose, Calif., maker of software systems that manage employee incentives based upon business achievements stunned Wall Street with its admission that results would be in the red on both a general accounting and pro forma basis.

The average estimate of three analysts polled by Thomson First Call was for a profit of 3 cents per share in the March quarter.

The company said the timing of transactions caused problems as it failed to close several deals due to customer merger activities and budgetary considerations. It anticipates revenue will come in between $16.5 million and $18 million for the period, well beneath Wall Street's consensus figure of $21.7 million and its own fourth-quarter total of $22.3 million.

"Callidus Software, like many enterprise software companies, transacts a significant portion of its quarterly business at the end of each quarter," said CEO Reed Taussig, in a statement.

"Our quarterly license revenues are dependent on a relatively small number of large transactions involving sales of our products to customers, and any delay or failure in closing one or more of these transactions could adversely affect our results of operations," he continued.

The company, whose name means clever in Latin, added that it remains optimistic about the future, and said it plans to address its expectations for the second quarter and the remainder of the fiscal during its conference call in April.

The news prompted Smith Barney to drop its rating on the stock to "hold," noting that this is the company's second reduction in its outlook for the March quarter, and that the shares may also see a wave of selling when the lock-up period related to its initial public offering expires in mid-May.

The firm said that Callidus executives said during a brief conference call that they expect many of the deals that failed to close in this quarter would still close this fiscal year with a heavy concentration anticipated in the three-month period ending in June.

Smith Barney, which also lowered its price target on the stock to $11.50 from $21, agreed with that but it still held to a bearish view for the full year.

""We anticipate some of these deals will close next quarter or throughout the year, but overall, we expect growth to be significantly less than expected this year," the firm said. "We do believe that the market remains in the early stages of development and we look for growth to pick up in 2005 and 2006."

The firm doesn't expect Callidus to return to the black in 2004.

"However, it will take some time to adjust the cost structure to regain profitability while also trying to capture the growth in the market," it told clients. "We expect the company to lose money this year as a result. We expect the company to return to profitability in 2005."

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